Wall Street hugs the flat line

Stocks stagnate after Tuesday's rally

SusanLerner

NEW YORK (CBS.MW) -- The major U.S. stock indexes ended the day not far from where they started in thin trade Wednesday as investors moved to the sidelines awaiting the next market catalyst.

"Everybody's going on tippy toes here with some optimism that the Fed is going to be fairly reasonable and strategic about the way they tighten," said Joe Liro, equity strategist at Stone & McCarthy Research Associates.

Stocks were rangebound, with the Dow Jones Industrial Average
DJIA, -1.24%
closing down 0.85 points at 10,379.58 after spending the day in a narrow 38 point corridor.

The Nasdaq Composite
$COMPQ
was up 2.63 points, or 0.1 percent, to 1,998.23 and the S&P 500
SPX, -1.54%
added 1.59 points, or 0.1 percent, to 1,133.60.

"It's the continued mixed signals that leads to this boring, unchanged market," said Stephen Massocca, president and head of trading at Pacific Growth Equities.

The Federal Reserve reported that the nation's industrial output was at a record high in May, rising 1.1 percent to 116.9 on the Fed's index. Capacity utilization rose to 77.8 percent from a revised 77.1 percent, the highest level in three years.

Economists had been expecting industrial production to rise 0.8 percent and capacity utilization to increase to 77.4 percent, according to a survey conducted by CBS MarketWatch. See Economic Report.

The Fed's Beige Book report on the current economic outlook, released Wednesday afternoon, said all sectors of the economy were healthy and growing. See full story.

The Commerce Department, meanwhile, said housing starts fell about 0.7 percent to a seasonally adjusted annual rate of 1.97 million in May from 1.98 million in April. Economists had been expecting a slightly larger dip in U.S. housing starts, to about 1.95 million units. Read more.

Massocca said the economy continues to get better, which is a good news/bad news situation. "Industrial output signals that things are good and that business is improving, but at the same time that leads to higher rates which isn't good for the market."

Yet, because good news hasn't been able to boost stocks for more than a day or two, Massocca doesn't know what will get markets out of the rut.

"It's difficult to look into my crystal ball and see what it's going to be," he said.

"I think if there's a point along the course of the summer where the Fed gets an inkling that the inflation numbers aren't going to be pretty close to their estimates, they may do one surprisingly large move and just sit there for a while and that could be a catalyst for a big market rally," he said.

Advancers outnumbered decliners by 18-to-15 on the New York Stock Exchange and 17-to-14 on the Nasdaq. Big Board volume neared 1.2 billion shares, while Nasdaq volume topped 1.3 billion.

Biotechnology, natural gas, integrated oil and oil services were leading the sector advancers. Software, airlines, and semiconductors were among the losers.

TrimTabs said late Wednesday that equity funds had outflows of $7.9 billion in May compared with inflows of $23.3 billion in April -- the first outflows since March 2003.

"Outflows are not at bear-market levels, but the public may be getting impatient," said TrimTabs director of research Carl Wittnebert.

In the bond market, Treasurys fell, reversing part of the previous session's surge. The 10-year note was down 11/32 at 100 4/32, lifting its yield back up to 4.73 percent vs. 4.68 percent at the previous close. See Bond Report.

In foreign exchange, the dollar remained higher against both the euro and the Japanese yen. The U.S. currency rose 1.2 percent at $1.2006 per euro and 0.7 percent at 110.09 Japanese yen per dollar. See Currencies.

In the commodities market, crude futures climbed on the New York Mercantile Exchange after the Energy Department and the American Petroleum Institute reported increases in U.S. oil inventories that fell short of market expectations. Crude for July delivery closed up 13 cents at $37.32 a barrel, after trading as high as $37.67. See Futures Movers.

Gold for August delivery closed up 10 cents at $385.30 an ounce on the New York Mercantile Exchange. See Metals Stocks.

Focus stocks

Oracle Corp.
ORCL, -1.42%
stumbled 3.1 percent to $11.35. The software company topped expectations for the fourth quarter but analysts expressed concern about weakness in its applications products. See full story.

Bear Stearns
BSC, -3.18%
reported better-than-expected earnings for its second quarter, posting a per-share result of $2.49, well above the $2.23 per share average estimate of analysts surveyed by Thomson First Call. The broker saw robust activity across its fixed-income businesses and steady improvement in clearing, wealth management and many of the equity areas. The stock rose 0.9 percent. Read more.

Earnings also came in better than expected for Best Buy
BBY, -0.86%
The electronics retailer posted first-quarter earnings from continuing operations of 34 cents a share, a penny better than the Wall Street forecast. Shares slipped 2 percent. See full story.

Meanwhile, Goodyear Tire & Rubber Co.
GT, -1.25%
failed to report first-quarter results as scheduled on Wednesday, because it needs additional time to complete its financial statements. Goodyear said it expects sales of about $4.3 billion in the quarter, and a net loss of between $75 million and $85 million. Goodyear fell 2.6 percent.

Sprint
FON, -3.57%
said it plans to reduce its work force by 1,100 employees as part of a restructuring. in its Sprint Business Solutions unit. The stock was off 2.5 percent. See full story.

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